Open Ceremony
Date: 15 February 2023(Wednesday)
Time: 1:00-1:15 p.m.
Venue: E22 FBA Lobby
UM FBA FinTech Academic Salon Forum Seminar Talk – 001
Self-collateral and Crypto Run
Prof. Wenjin KANG
Professor in Finance
Date: 15 February 2023(Wednesday)
Time: 1:15-2:00 p.m.
Venue: E22 FBA Lobby
Moderator: Prof. Sili (Alex) ZHOU, Associate Professor of Finance
Abstract
Recent turmoil in the cryptocurrency market witnesses the sudden collapse of major centralized exchange in short time span. In this study, we construct a model that includes a bank-run feature for the cryptocurrency exchange. Investors deposit their crypto-assets in the exchange for convenience yield. The exchange borrows the investors’ assets to invest in a basket of cryptocurrencies that include its own token. Some investors’ withdrawal decreases the convenience yield and the value of the exchange’s token. This can prompt more additional investors to withdraw their crypto-asset from the exchange. Therefore, a crypto run happens. The decrease of the exchange token price and the increase of the number of runners can reinforce each other, which creates a downward spiral. Our model also shows that high self-collateralness increases the instability of the exchange and hence the probability of the crypto run.
All are welcome!
